What Is a Reverse Mortgage (HECM)
A reverse mortgage (formally HECM, or Home Equity Conversion Mortgage) is an FHA-insured loan for homeowners 62 and older. It works opposite to a traditional mortgage: instead of making monthly payments to the lender, the lender makes payments to you (or you tap a line of credit).
Key Mechanics
You retain ownership and title
No required monthly mortgage payment
You access your home equity
The loan balance grows monthly as interest accrues
The loan is repaid when you sell, move out, or pass away. The loan is non-recourse, meaning if the home value drops below the loan balance, FHA insurance covers the difference. Your heirs never owe more than the home's sale price.
How You Receive the Money
You have four ways to get cash from a reverse mortgage.
Lump sum. Single payment of available funds at closing. You must choose a fixed rate (not adjustable). Simplest option if you need cash immediately.
Monthly payments (tenure). Fixed monthly payment as long as you live in the home. You never run out of payments. Provides retirement income stability.
Monthly payments (term). Fixed monthly payment for a set number of years (5, 10, 15 years). After the term, payments stop. Balance is still there, or you can refinance.
Line of credit. Draw what you need, when you need it. The line grows over time (unlike a HELOC which shrinks as you draw). Maximum flexibility. You pay interest only on what you have borrowed.
Combination. Most borrowers use a combination, maybe $10,000 lump sum at closing, $500/month tenure, and a line of credit for emergencies.
Who Qualifies for a Reverse Mortgage
Eligibility Requirements
Age: 62 or older. All borrowers must be 62+; if married, both must be 62+ to qualify.
Primary residence: Must be your principal home (not investment property).
Equity position: Typically need 50%+ equity.
Home must meet FHA standards: No major defects, roof must be sound, systems functional.
Current on property taxes and insurance: Must be current, and must stay current.
HUD-approved counseling: Required. Typically 1-2 hours, often done online now.
Financial assessment: Lender evaluates your ability to stay current on taxes and insurance.
How Much Can You Borrow
Reverse mortgage borrowing power depends on three factors: your age, your home value, and current interest rates.
General range. For a borrower in their late 60s, typically 40-60% of home value is accessible. For borrowers 80+, up to 60-70% of home value. Older borrower = more access.
2026 HECM limit: $1,249,125 maximum (annual limit set by HUD).
Real Example
Home value: $350,000
Borrower age: 68
Estimated access: 50% = $175,000
Interest rate: Current ~7.5%
Available funds: Roughly $175,000 (exact amount depends on final appraisal and rates). You can access this as lump sum, monthly payments, line of credit, or combination.
HECM vs HECM for Purchase
Standard HECM. You own a home already and tap its equity.
HECM for Purchase. You are a retiree who wants to downsize or relocate. You find a new home, and use a HECM for Purchase to buy it with no required monthly mortgage payment.
HECM for Purchase Strategy
Sell current $450,000 home, pocket $300,000 equity.
Buy new $250,000 home using HECM for Purchase.
You access the equity to buy with no payment obligation. Live in the home payment-free. This is powerful for retirees downsizing. You are replacing a $450K home with $250K, pocketing equity, and eliminating the mortgage payment.
Costs and Long-Term Considerations
Upfront mortgage insurance (MIP). 2% of home value. On a $350,000 home, that is $7,000 added to loan balance at closing.
Ongoing mortgage insurance. 0.5% of loan balance annually. As the loan balance grows, MIP grows.
Origination fee. 1-2% of home value ($3,500-$7,000 on $350,000 home).
Closing costs. Standard mortgage closing costs apply (appraisal, title, recording fees, counseling fee). Total: $2,000-$5,000.
Total upfront cost. ~$12,500-$19,000 on a $350,000 home.
Interest rate. 7.5-8.5% currently (adjustable reverse mortgages are lower; fixed-rate lump sum is higher).
How the loan grows. Each month, interest accrues on the outstanding balance. The balance grows. You do not make payments, so it compounds. After 10 years, a $150,000 initial loan balance might grow to $250,000+.
What your heirs receive. When you pass, the home is sold. Sale proceeds minus reverse mortgage balance go to your heirs. If the home appreciates faster than the loan grows, your heirs benefit significantly. If the home value stagnates, the loan might exceed the home value, but FHA insurance covers it. Your heirs owe nothing.
When a Reverse Mortgage Makes Sense
Eliminate your monthly mortgage payment. You are retired, income is limited, and the mortgage payment is a burden. Reverse mortgage converts that burden into available equity.
Supplement retirement income. You need extra monthly income beyond Social Security and pension. Tenure or term payments provide that.
Build a line of credit hedge. You are healthy and plan to stay in your home. A HECM line of credit grows over time and can be used for healthcare emergencies or unexpected expenses later.
Fund aging-in-place modifications. Accessibility ramps, grab bars, bathroom modifications, home care support. The home modification pays for itself through the ability to age in place.
Bridge gap before maximizing Social Security. You are 62-67 and could delay Social Security to maximize benefits at 70. Reverse mortgage can bridge the income gap.
Preserve liquid assets for healthcare. You have substantial home equity but limited liquid assets. Reverse mortgage converts home equity into liquidity while preserving other assets for inheritance or long-term care.
When It May NOT Make Sense
Planning to move within a few years. Closing costs are not recovered if you leave soon.
Inheritance preservation is the priority. Your goal is to leave the largest estate possible. A reverse mortgage will reduce or eliminate the home equity your heirs receive.
Sufficient retirement income already. If Social Security, pension, and investments fully fund your retirement, you do not need supplemental income.
High debt levels. You are considering a reverse mortgage to pay off credit card debt at 22%. Generally not advisable. You would be converting unsecured debt to secured debt tied to your home.
Emotional discomfort. Some retirees are philosophically opposed to reverse mortgages. Comfort matters. Do not do it if it keeps you up at night.
Frequently Asked Questions
If I get a reverse mortgage, do I lose my home?
No. You retain ownership and title. You can sell anytime. The lender has a lien, but you own the home. The loan is repaid from sale proceeds.
What happens to my home when I pass away?
Your heirs can sell the home and keep any remaining equity after paying off the reverse mortgage. Or they can refinance the loan balance and keep the home. Or they can let the servicer handle the sale. FHA insurance means they never owe more than the home's sale price.
What if the home value drops below the loan balance?
FHA insurance covers it. Your heirs are protected. They owe the lesser of the loan balance or the home's current value. Non-recourse.
Is there a non-borrowing spouse protection?
Yes. If you die and your spouse is on the deed but not on the loan, they can remain in the home without making reverse mortgage payments (subject to staying current on taxes and insurance). This is called non-borrowing spouse protection. Rules are strict. Consult a reverse mortgage specialist.
Are reverse mortgage proceeds taxable?
No. Loan proceeds are not income; they are borrowed funds. No 1099 or tax form. No tax liability.
Can I refinance a reverse mortgage?
Yes. If rates drop or your situation changes, you can refinance a reverse mortgage into a new one (or into a traditional mortgage if you have income to support payments). Closing costs apply.
How does this affect Medicaid or Medicare?
Reverse mortgage proceeds do not affect Social Security or Medicare. Medicaid eligibility depends on assets. Reverse mortgage funds in your bank account count as assets. Consult an elder law attorney.
Stay in Your Home, Tap Your Equity
Reverse mortgages have a bad reputation because of predatory marketing in the past and misuse by borrowers who did not understand them. But the product itself is sound. For a retiree who owns a home, has limited income, and wants to stay in place, a reverse mortgage is a legitimate financial tool.
You have built this home. You have paid for it (or nearly paid for it). The equity is real and substantial. A reverse mortgage lets you access it without selling, without moving, and without monthly payments. That is powerful for the right borrower.
Brandon works with retirees and seniors on reverse mortgages. He explains the true costs, the payment options, how equity grows and shrinks, and whether a reverse mortgage makes sense for your situation. If it does, he guides you through counseling, underwriting, and closing. If it does not, he will tell you and suggest alternatives.
Call Brandon at 832-997-1527 or visit brandonhuynh.net.
Related Resources
- Senior Mortgage Houston - All mortgage options for Houston seniors
- Home Equity Loan Houston - Traditional home equity options
- Refinance Houston - Refinancing your current mortgage
- FHA Loans Houston - FHA loan programs overview
- Mortgage Pre-Approval Houston - Start the process today
Stay in Your Home, Tap Your Equity.
The equity is real and substantial. A reverse mortgage lets you access it without selling, without moving, and without monthly payments. Brandon explains the true costs, the payment options, and whether a reverse mortgage makes sense for your situation. Free consultation, no obligation.
Talk to Brandon About Reverse Mortgages